What Are the Policy Fundamentals? Key to the New Economy paradigm of economic growth, where it has been observed, is a fundamental set of policies that maximize sustainable growth through dynamic and full use of resources. The policy set presented here generated growth well before the recent high- technology boom and bust; although ICTs magnify the synergies among these prerequisites and the benefits that accrue from them. As to how any policymaker should respond to this set of fundamental policies, an economy’s policy history influences what reforms are most pressing—the New Economy does not burst upon a neutral scene in any economy.
But, there is much to learn from the experiences of the member economies about what reforms work and in what sequence. Four policy domains offer a useful framework for classifying policies that are crucial to creating an environment in which networked information and communications technologies can transform the activities of governments, consumers, and firms, yielding overall higher productivity growth and economic well-being. Efficient and effective fiscal policy and fiscal activities direct public expenditures toward high-return activities and implements efficient, progressive, and broad-based tax regimes that support private sector incentives for growth.
High performance banks and financial markets operating with sound prudential supervision yield market-determined interest rates and allocate resources toward investments with higher rates of returns (including through venture methods). Liberalized trade and cross-border investment augment competition, bring in best-practices, and promote efficient production based on comparative advantage. Pro-competitive regulation, and clear legal environment, within a fabric of rule of law encourages flexible entry and exit of firms and workers which support business innovation, employment, and growth. This is not a new framework and these are not new policy domains—why revisit this terrain?
What specifics underlie these general policy statements, why are these domains so important for the development of the New Economy, and how can the synergies between and among them help to create the environment conducive to the New Economy? Fiscal Policy and Fiscal Activities: Government is like a big business. Even where streamlined, it has a large labor force, is a big spender, and interacts in many ways with its citizens, business, and economy.
Therefore ensuring that administrative costs are low, procurement is efficient, taxes are collected efficiently, and communication is transparent are increasingly important, particularly in the New Economy environment where information and networked relationships have greater value. It goes without saying that poorly allocated or politically driven fiscal spending and inefficient tax policies bloat the government as well as have a deleterious impact on both macroeconomic environment and microeconomic incentives. The technologies of the New Economy both increase the premium on efficient government as well as help enable it.
Just as private firms are changing the way they do business, networked ICTs will change how government performs its core functions, including raising tax revenues, procuring goods and services, informing the public and providing for their needs. - 15-